Sacramento International Airport will join the growing field of issuers that have executed a tender offer-refunding when it heads to market next month.
The airport has paired the tender offer with new money debt to fund its airport expansion.
Issuers pushed out $48 billion in
The growth in the offerings has prompted the Government Finance Officers Association
"I think a lot of folks are looking at tenders, because they see an opportunity for meaningful savings today. It's better to take the opportunity while you have it then wait for the perfect opportunity that may never materialize," said
Bookrunner BofA Securities and co-managers Jefferies and Morgan Stanley on Aug. 5 will price $412.8 million of new money bonds, plus a refunding component to be determined based on takeup of the tender offer.
The new money comes in two tranches: $320 million of airport system senior revenue bonds and $92.7 million of airport system subordinate revenue bonds. Interest on the new money tax-exempt bonds is subject to federal alternative minimum tax.
It also has four tranches of refundings planned with amounts dependent on participation from the $273 million in tender candidates from bonds issued in 2016 and 2018. They are expected to be non-AMT, according to an online investor presentation about the deal.
PFM Financial Advisors is the municipal advisor and Orrick is bond counsel. BofA is also the deal manager for the tender offer and Global Advisors is the information and tender agent.
The
The airport's tender offer is an attempt to capture savings on debt not callable until 2026 or 2028, hedging against the possibility of interest rates rising next year, Wimsatt said.
The upward pressure on inflation due to tariffs and geopolitical concerns coupled with the uncertainty as to whether
President Trump wants a more compliant Fed chair who will cut the Fed funds rate,
"We have an opportunity to pursue a tender offering this year, and it could take uncertainty off the table," Wimsatt said. "There could be meaningful savings in a tender. As we advance toward it, it's an opportunity to dollar-cost average."
The finance team hopes to see interest from about 30% of the $273 million in tender candidates.
That percentage is the target, because "it's a meaningful portion of the bonds," Wimsatt said. The county actually doesn't want, nor would it buy back, 100% of the bonds included in the tender offering, he said.
"We don't want 100% on the tender, because there is a chance terms could improve before next year; and acting on 100% would represent a new risk," Wimsatt said.
"Some of the bonds are callable in 2026 and some are callable in 2028," Wimsatt said. "At 30%, we would be able to refund a significant portion at the call date in 2026, and the remainder in 2028 with a standard refunding."
The airport won't move ahead with a refunding unless it can realize at least 3% savings and it hopes to realize 5% present value savings. The savings would depend on how much participation the team sees in the tender.
"We are going to see where prices come in before we make a decision about whether to move ahead on the tender," he said.
In this structure, issuers ask bondholders to sell their bonds for cash or for new bonds, often financing the tender offer with a new borrowing. The issuer needs to purchase the bonds at a low enough price to lower future debt service costs.
Bonds with an above-market coupon rate that are not callable are considered attractive candidates for a tender offer. The structure took off after the 2017 tax bill eliminated advanced refundings, as a method of refunding debt prior to the call date. It's also been used to convert taxable debt to tax exempt and issuers experiencing distress — even prior to 2019 — used the model to address short-term cash flow needs.
The new money bonds are to fund both the airport system's entire $1.8 billion capital improvement program and provide more funding to its $1.6 billion
It's the second debt sale the airport has executed to fund SMForward. Wells Fargo Securities priced $467.3 million in non-AMT airport system senior revenue bonds on Sept. 25 for the airport.
The serial series bonds sold with 5% coupons in maturities ranging from 2028 to 2044. Yields ranged from 2.25% to 3.75%.
SMForward, which grew out of the airport's master plan updated in 2015, is "moving right along," Wimsatt said.
The project will move car rentals closer to the airport's two terminals, add six to eight gates for airplanes, construct a $140 million passenger walkway to supplement the people mover linking Terminal B with its concourse, and build a 5,500-space parking garage.
The proceeds from last year's debt are funding the parking garage and pedestrian walkway, both of which are expected to open in late 2026. The walkway is about 50% constructed, and is on time and on budget; and the parking garage is on time and trending under budget, he said.
Work won't begin on the car rental project until after the parking garage is done, because construction of that will displace some of the existing parking, he said.
He expects the airport will head to market to issue debt for that project in 2027 or 2028. That debt would be repaid using customer facility charges levied on rental transactions.
Conservative estimates on the project and a labor agreement with the local unions have enabled the projects to stay on track despite the inflationary pressures other infrastructure projects have been facing, he said.
The bonds will also help fund maintenance projects at the other airports Sacramento County runs: Mather Airport, Executive Airport and Franklin Field.
Moody's Ratings assigned its A2 rating to the senior debt and A3 rating to the subordinate bonds. It also affirmed existing debt at the same level and assigned a stable outlook.
The ratings affect $1.5 billion in debt.
They reflect Moody's expectation that healthy post-pandemic enplanement recovery will support strong revenue growth and progress on the capital projects.
Enplanements were 6.6 million in fiscal 2024 — the airport's highest ever — and are expected to beat that by 4.6% when the numbers are tallied for fiscal 2025, which ended June 30, according to an online investor presentation for the deal.
Moody's ratings are constrained by the $1.8 billion capital program, which includes $1.4 billion for the SMForward airport expansion project and $400 million for maintenance projects across the four airports it runs.
S&P affirmed its A-plus rating on the senior debt, and A rating on the subordinate debt ahead of the deal. The outlook is stable.
"We do not expect to raise the rating over the two-year outlook period, given the airport's moderate debt burden and significant capital projects to be executed over the two-year outlook period," S&P analysts wrote in the report.
